Unpacking Africa’s Growth Forecasts: Potentials and Risks

This is a guest post by Diptesh Soni. Diptesh is a master’s degree candidate at the Columbia University School of International Public Affairs (SIPA) studying economic and political development. You can read more by him at: https://dipteshsoni.contently.com/.

Recent statistics by the Economist Intelligence Unit forecast growth in sub-Saharan Africa–specifically South Africa, Angola, Kenya, and Nigeria–to increase from 3.7 percent to 6.0 percent within the next five years. Indeed, there are many reasons to be chirpy about the continent’s growth trajectory: improved fiscal management, sustained crude oil prices, and the high start-up costs for mining ventures mean that the slow shift from export-led to consumer-led growth in China will not be devastating to African economies. Others have cited rapid urbanization and a “demographic dividend” as further reasons to expect big things in upcoming years.

But much of the optimism surrounding future growth rests on weak assumptions. The “demographic dividend,” for example, caused by a “youth bulge” that will provide cheap labor is a huge hypothetical. African economies already suffer from a severe shortage of adequate skills in the labor force, and while countries have made strides in increasing access to basic education, the quality of the instruction that students receive in the classroom remains poor. As the 2013 Human Development Report highlights, high fertility rates within Africa were likely a direct consequence of expenditure cuts in education. If Africans are not given a proper education, fertility rates will remain high and the “demographic dividend” will become a youth burden.

The belief that rapid urbanization will yield rapid development is also suspect. While it may be true that “large urban centers allow for innovation and increase economies of scale,” as Wolfgang Fengler of the World Bank claims, African urbanization has been ad hoc and chaotic. Governments and donors across the continent have been unable to provide growing urban populations with basic services, let alone viable employment, and as a result many of the poor are stuck in slums. Khayelitsha in South Africa and Kibera in Kenya serve as merely two examples out of far too many.

The purported rise of the African “middle-class” also warrants clarification: The African Development Bank deems as “middle-class” anyone earning between $2 and $20 a day, 60 percent of whom fall into the “floating” middle-class between $2 and $4. These people could easily slip back in to poverty. Others such as Citigroup’s David Cowan cite high levels of inequality, which leaves opportunities for businesses to cater either to the emerging wealthy elite or the consuming poor, with little room for a middle-class.

American giants such as IBM, WalMart, and General Electric are making inroads into African markets, to say nothing of Chinese investors. While these movements might be harbingers of growth to come, the danger of assuming big growth figures lies in the possibility for complacency. Demographic trends will not yield dividends, nor will large urban centers yield attractive economies of scale, if governments and donors do not step up to Africa’s problems of human and physical development.

Africa is well positioned for a grand takeoff, but transforming deeply agrarian economies into global manufacturers will entail transforming large urban and youth populations into productive assets. This will require greater and more innovative investments in infrastructure, energy, education, and social services.